Travel and Tourism: An Industry on the Rise

One of the fastest growing sectors in the world, tourism is unpredictable and volatile. Understanding the trends and looking at forward projections will help future business owners make the right decisions.

Travel and Tourism: An Industry on the Rise

Considered to be the world’s largest sector, with annual revenues of almost $500 billion, tourism appeals to entrepreneurs worldwide who may consider the sector to be bursting with business opportunities. But, insiders say it takes passion and hard work to be successful in this sector which is influenced by most internal or external forces. Tourism comprises numerous players ranging from micro enterprises to larger dominating businesses.

Global context

According to the Department of Trade and Industry (dti), tourism accounts for roughly 35% of exports of services and over 8% of exports of goods, globally. Around

340 million people are directly and indirectly employed in tourism around the world. By 2004 international foreign tourist arrivals reached 760 million, predicted to grow to 1,56 billion in 2020. The World Tourism Organisation’s (UNWTO) latest World Tourism Barometer states that last year, international tourist arrivals were up by almost 7% from 2009 to 935 million.

The dti assigns the strong growth of the tourism sector over the past 50 years to economic globalisation, including innovations in transport, information and communications technologies, as they have made travel cheaper and more readily accessible.

Other factors leading to the exponential growth include increasing leisure time and disposable income.

Local focus

While following the growth trend of the rest of the world in terms of increasing tourist arrivals, Africa was less affected by the economic downturn in 2009. Africa was the only region to show growth in 2009, and it maintained this trend in 2010. No doubt, hosting the FIFA World Cup in South Africa boosted the figures. According to the UNWTO, North and Sub-Saharan Africa were not impacted by the global crisis.

In South Africa, tourism has been referred to as the ‘new gold’ of the economy as the total foreign direct spend of tourists has overtaken gold foreign exchange earnings. In its Marketing Tourism Growth Strategy for SA, SA Tourism states that the contribution of tourism to South Africa’s GDP is around R190 billion.

It has outperformed all other sectors in terms of GDP and job creation. Yet the tourism body believes opportunities remain to extract further value; when compared to global competitors, the country’s tourism industry appears to be underperforming.

Statistics published by Statistics South Africa show that there have been remarkable increases in the number of travellers (both foreign and South African residents) who passed through South African ports of entry in the last twenty years. In 1990 about three million travellers were recorded and at the end of 2009, this number grew to around 27 million.

The South African tourism sector continues to grow and the current growth phase is characterised by a large number of new entrants in the market and excess capacity in some parts of the sector, particularly accommodation. Tourism is characterised by the high number of small, medium and micro players. It is relatively easy for an entrepreneur to open a bed & breakfast or start a tour operating company.

South Africa’s travel and tourism sector can be divided into eight sub-sectors, each offering business opportunities for entrepreneurs. The sub-sectors are:

  • Transport sector comprising airlines, shuttles, trains, buses, ships, taxis, etc
  • Travel agents
  • Tour operators
  • Tour guides
  • Hospitality (accommodation, food and beverages)
  • Meetings, Incentives, Conferences and Events (MICE)
  • Tourist attractions

International travellers

The tourism trade plays a critical role in connecting the consumer with destination products. Because South Africa is a less established destination for international tourists, little international travel planning or booking takes place outside the travel channel, in which travel agents and tour operators play a key role.

Statistics South Africa’s annual Tourism publication shows that just under 90% of overseas tourists flew into South Africa, compared to those who came in by road. Visitors from overseas spent, on average, five to seven days in South Africa, and less time was spent in the country during the winter months of May and June.

Domestic travellers

While a lot of emphasis is placed on foreign or international tourism, domestic tourism remains the engine room of many tourism economies, and is more resilient than international tourism. According to Statistics South Africa’s latest Domestic Tourism Survey the most popular province for domestic travellers on general overnight trips in 2009 was KwaZulu Natal.

Visiting friends and family was the main reason for both day and overnight trips. The two most frequently used modes of transport for domestic tourism were taxis and cars. The most popular activity was eating out at restaurants and cafes, while most travellers also engaged in shopping at malls and flea markets.

For leisure or holiday purposes, the Western Cape was the preferred destination. Most overnight trips lasted between one and three nights. The dti says tourism is labour intensive and presents comparatively low barriers to entry for entrepreneurs with regard to skills. Tourism generates employment and income in supporting industries, including financial services, construction, cleaning, security, laundry, arts and crafts, beach vendors and food and beverages.

Study the trends

Some of the trends highlighted by the dti include increasing domestic and short-haul travel and less long-haul travel due to global safety and security concerns and cost; increasing independent travel, decreasing organised tours as travellers want customised experiences; later bookings and more self-planning for trips; growth of the low-cost airline industry; and the growing maturity of tourists who are increasingly seeking a differentiated tourism experience such as cultural tourism, eco-tourism and adventure tourism.

Gillian Saunders, head of advisory services for Grant Thornton, says that tourism will see overall growth but that tough times remain. “Currently there is an oversupply as too much capacity was brought on based on 2005 – 2007 trends and the World Cup,” she says.

Hotels, including large global brands are offering smaller, distinctively designed properties that offer a personalised service for sophisticated travellers. There has also been an increase in alternatives to large, branded hotels like bed & breakfasts, guesthouses and backpacking lodges.

As far as the outbound travel sector is concerned, Robyn Christie, CEO of the Association of SA Travel Agents (Asata), says the current trend is for companies to streamline efficiencies in an effort to counteract the effects of the downturn. “Businesses need to work out where they are losing money.”

She adds that customers are well informed at the moment as they have access to a lot of information, so agents need to offer a service that proves why their business is right for the client. “What people underestimate is that clients invest heavily and even though only a small portion of that investment goes to the travel agent, customers hold them responsible for fulfilling the full  investment.”

Get connected

The Internet has become one of the most important marketing channels in tourism and offers travel business a cheaper way to distribute content to a large audience. Globally, tourism is said to be the largest selling commodity on the Internet. More than 70% of travellers start their travel plans on the Internet.

Technology changes often so it is almost impossible to expect to keep up, says Christie. She says that companies need to invest well across the board with the right people using good technology.

Facing challenges

Travel, particularly involving international tourists is vulnerable to perceptions and global events. According to the dti, between 2001 and 2003 the global tourism economy suffered a number of setbacks including the terrorist attacks of September 11, 2001.

This event brought on a sudden decrease in travel and changed travel patterns forever. Other global events that have affected tourist demand include the economic recession, the outbreak of SARS and later Swine Flu, ongoing terrorist attacks, volcanic ash and extreme weather conditions.

Saunders also points out internal factors to be aware of when thinking of entering the tourism sector. These, she says, include a lack of marketing, poor management and poor service.

Looking ahead

According to the UNWTO, growth is expected to continue for the tourism sector in 2011, but at a slower pace. UNWTO forecasts international tourist arrivals to grow at between 4% and 5% this year.

Statistics from the dti project that there will be 77,3 million international arrivals to Africa in 2020, which shows an average growth rate of 5,5%. Intra-regional travel within Africa is expected to increase much faster than long-haul travel. As economic development in Africa increases, South Africa will benefit from an associated increase in tourist arrivals.

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Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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